Budget 2024: Centre may offer 50% of last drawn pay as pension under NPS, says report

The Government of India is considering to guarantee 50% of the last drawn salary as pension to its employees under the National Pension System (NPS), the Times of India reported on Wednesday, July 10.

The report comes amid concerns expressed by a section of central government employees over the payout of their pensions under the NPS.

Central trade unions, in their meeting with Finance Minister Nirmala Sitharaman for pre-budget consultations last month, had reportedly demanded the restoration of the Old Pension Scheme (OPS).

OPS and NPS

Under the OPS, the employees are guaranteed 50% of their last drawn salary as a lifelong pension, subject to adjustments according to the pay commission’s recommendations. This ensures that government employees will receive an assured pension after they retire as long as they’ve worked for at least 10 years. The pension amount depends on their last pay and the number of years they have worked. This makes OPS a ‘defined benefit scheme’.

A key feature of OPS is that the employees will receive the guaranteed pension amount post-retirement by the government without contributing to the pension fund while they are working.

On the other hand, NPS is based on contributions where government employees contribute 10% of their basic salary and the Centre provides 14% for their pension. This makes NPS a ‘defined contribution scheme’.

Somanathan committee findings

In April 2023, a committee led by Finance Secretary T V Somanathan was established to look into the concerns involving the pensions of central government employees. The Somanathan committee has studied global practices and analysed the changes brought by the Andhra Pradesh government to the pension system. Additionally, the committee has also made attempts to calculate the impact of providing assured returns to employees.

The central government can offer a 40-45% guarantee for pension but that will not address the concern of employees who have worked for 25-30 years, the Times of India report said, adding that the government is considering to offer a 50% guarantee if there is a shortfall.

The committee finds it necessary to conduct an assessment of the scheme every year, the newspaper said, adding that this is because the Centre does not have a retirement fund and the pension system operates unfunded. It is also reportedly expected that the Centre might create a fund like companies that have retirement benefits for their employees.

Notably, the Joint Forum for Restoration of Old Pension Scheme, formed under the National Joint Council of Action (NJCA), requested the finance ministry to bring back OPS in a memorandum given out on January 11, 2024. The reinstatement should apply to central government employees who started working on or after January 1, 2004, they demanded.

In December 2023, the central government told Lok Sabha that they are not planning to reinstate the OPS.